5 Reasons for Investors to Be Worried

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Let me take you back to those thrilling days of yesteryear — OK, January 2011, to be precise — when confidence on Wall Street was so pervasive that investors expected traders to start belting out the Annie show tune “Tomorrow” at a moment’s notice. None of the 32 experts surveyed by CNNMoney at the start of the year thought the S&P 500 would decline in 2011. What a difference nine months make.

These days, the mood of the investing public ranges from gloomy to despondent. As the Occupy Back Wall Street protests gain momentum, talk of better times ahead is replaced by discussions about how President Barack Obama’s poor standing in the polls could affect his re-election chances. A whopping 74% of Americans told Gallup they believe economic conditions in the U.S. are getting worse. Bad news is so common that terms like “the new normal” have cropped up in an effort to explain to the bewildered masses that the tough times likely won’t improve anytime soon. Indeed, the Congressional Budget Office expects the unemployment rate to remain above 8% through 2014 and predicts real GDP will expand by 2.3% this year and by 2.7% next year.

The mood among Wall Street sages also has grown more pessimistic since those giddy January days. Goldman Sachs chief U.S. economist, Jan Hatzius, recently put the odds of the U.S. hitting a recession in 2012 at 40%. He forecasted that unemployment will rise to 9.5%.

If that data doesn’t depress you, here are five more topics and bits of economic data that could make even the most cockeyed optimists run for cover. They are, in no particular order:

The Supercommittee

The 12-member, bipartisan Joint Select Committee on Deficit Reduction has the unenviable job of finding $2 trillion in deficit reduction measures that can be applied over 10 years. The panel’s deadline is Nov. 23. If its members fail to reach an agreement by then, $1.2 trillion in across-the-board cuts will be triggered, a scenario neither party wants.

To the surprise of no one, the supercommittee, as it is known, is — in the words of headline writers all over the Internet — super-deadlocked. Established under last summer’s budget and debt deal, the panel “appears no closer to a breakthrough than when talks started,” according to the Associated Press. “The reason? A familiar deadlock over taxes and cuts to major programs like Medicare and the Medicaid.”

China

Signs abound that the China’s economy is overheating. The International Monetary Fund estimates that the world’s second-largest economy will grow 9.5% in 2011, down from 10.3% in 2010. Unfortunately, that will miss the government’s target of 7%.

Prices for Chinese goods are rising as workers increasingly demand higher wages. The Chinese government is worried that economic instability will lead to political instability. The thought of that probably sends shivers up the spines of China’s trading partners.

Retail Sales

Holiday sales are expected to rise 2.8% this year, to $456.6 billion, according to the National Retail Federation. That’s down from the 5.2% reported last year and slightly ahead of the average gain of the past 10 years, which is 2.6%. Alhough many retailers are hiring as many, if not more, temporary workers as they did a year ago, the industry is sounding a cautious note.

“Persistently high unemployment, an erratic stock market, modest income growth and rising consumer prices are all combining to impact spending this holiday season,” NRF Chief Economist Jack Kleinhenz said in a press release.

Real Estate

The real estate market continues to bump along the bottom. Clear Capital, a real estate data firm, estimates that U.S. home prices, dragged down by foreclosure inventory, will fall 2.4% in the second half of the year compared to the first. That would represent a relatively modest overall improvement over the 3.2% price drop for the first half of 2011 compared to last six months of 2010.

A rebound in real estate prices remains elusive. Housing starts in August hit a three-month low, lending criteria have remained stringent, and even record-low interest rates failed to stimulate sales. A large excess inventory of homes could keep housing prices depressed for years to come. One expert recently forecast that housing prices might fall another 20% over the next several years.

Food Prices

Surging food prices have caused riots in some parts of the developing world. That hasn’t happened in the U.S. yet, though consumers and food companies such as McDonald’s (NYSE:MCD) and Kraft Foods (NYSE:KFT) are feeling the pinch. In May, Bloomberg reported that U.S. food price inflation might top the government’s forecast for a 3% to 4% increase.

Increases may slow in 2012 because farmers have bigger supplies of corn than originally thought. Corn prices surged to record levels in June because of limited supplies, according to the Associated Press.

Jonathan Berr owns shares of MCD. Follow him on Twitter at @jdberr.

Jonathan Berr is an award-winning freelance journalist who has focused on business news since 1997. He’s luckier with his investments than his beloved yet underachieving Philadelphia sports teams.


Article printed from InvestorPlace Media, https://investorplace.com/2011/10/five-reasons-for-investors-to-be-worried-political-gridlock-china-housing-retail-sales-holiday-sales-food-costs/.

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